Contractor Advice

One way is to use Investment Bonds, which are popular with wealthy investors who use them as tax efficient wrappers for holding assets.

The bonds are life insurance policies and are typically used to generate a long term capital growth, with the flexibility for the bond holder to withdraw up to 5% of the capital invested when needed and to defer any tax charge until the bond is fully cashed in.

The issuer of the bond pays the equivalent of basic rate tax currently 20% on the income and gains of the bond, and when the bond matures the taxpayer has no tax liability unless they are a higher rate tax payer at the time, thus the attraction of investment bonds.

The bonds whilst being attractive for tax purposes should only be used once you have used your ISA allowance, where the gains and income are free of tax.

The Inland Revenue were once the least least frightening of the all the UK tax authorities, lagging behind the VAT people who had inspection powers comparable to the police service.

Now that Inland Revenue and HM Customs and Excise have joined forces to become HMRC the old Inland Revenue departments have started to get or are pending seriously increased powers, added to that powerful computers called Connect which can data mine information from a variety of sources, from the taxpayers information, the internet, credit card/bank information and land registry information which can pick-up perceived irregularities on tax payers returns and disclosures. The balance of power is definitely shifting between the authorities and taxpayers who evade or avoid taxation.

Whilst the accountancy and legal profession generally welcome any effort to support the Governments attempt to tackle evasion there are concerns that HMRC does not have the best record in making accurate tax assessments.

This was highlighted just last week when it sent out about 200,000 incorrect income tax calculations which it put down to a computer error.

The powers which are now in force are demanding without appeal, upfront payment from any individual who participated in any arrangement deemed to be a tax avoidance vehicle (what is a tax avoidance vehicle is determined by HRMC’s judgement) this concerns many accountants.

Another pending power is the ability to recover tax debt directly from a taxpayers bank account. The taxpayer must have a balance of over £5000 in their account before any recovery of the amount over £5000 can take place. HMRC would not need to notify the taxpayer before recovery takes place.

Plus there are now added pressures in the system, as the Government has a public finance deficit which will increase pressure on HMRC to collect tax and recover tax debts.

The regular tax paying member of the public shouldn’t have much to fear about these increases in HRMC’s powers, but the balance of power between the tax payer and HMRC is changing and HMRC will make mistakes which unfortunately accountants will be less able to stop.

The Organisation for Economic Co-Operation and Development, OECD, an organisation which promotes policies which will improve the economic and social welfare of people around the world which has published, on the 21 July 14, a publication outlining the standards agreed for the automatic exchange of financial information in tax matters between key tax authorities worldwide.

The G20 leaders met in September 2013 and endorsed the OECD proposal for a global model for automatic exchange of information to fight tax evasion and ensure tax compliance.

The standard was approved by the OECD council on the 15 July 14. The standard calls on jurisdictions to automatically exchange information between their fiscal authorities on an annual basis and outlines common due diligence processes which will need to be followed by financial institutions.

It is a big move towards automatic exchange of information in a multinational context and a tool in the global fight against tax evasion.

The Finance Bill has now received Royal assent and controversial accelerated payment notices are now law. This means from next month HMRC can issue accelerated payment notices to people HMRC consider have been involved in tax avoidance vehicles and demand the full disputed tax is paid upfront.

The more interesting point is not how HMRC use these powers with current tax avoidance vehicles, but how it applies the powers to schemes and investments made many years ago, where investors will have got tax relief and the scheme is now a distant memory in the tax payers mind.

Will HMRC use these new powers to demand back payment of associated tax relief, penalties and interest?

The treasury have published a list on gov.uk website which lists the avoidance schemes HMRC are targeting and state HMRC may issue notices to people using such schemes over the next 20 months or so.

This will be an interesting story to follow, as the sums involved are likely to run into millions of pounds plus the powers have been criticised by leading accountants and lawyers as they do not give the taxpayer an option of disputing the tax before paying at a tribunal and also not giving a right of appeal. Perhaps a more fundamental issue, one which HMRC disputes, is that it is changing the tax law retrospectively. It is going to get interesting!

How should Freelancers and contractors cope with the world cup?

The football world cup is just around the corner and the excitement is building for both football and non football fans alike.

The world cup give employers an added problem, should they allow staff time off to watch the matches, should they supply a room with a TV in it so staff can watch matches during work time or should they ignor it and try to carry on business as usual?

This time the schedules have been reasonably kind to employers, being held in Brazil the matches will be held at times which have limited effects on a normal contractors working schedules. The only significant England group match which needs consideration is the Costa Rica match on the 24 June 14 which has a 5pm kickoff.

Is it better to be a contractor during the world cup?

A benefit of being a freelancer or contractor is the ability to be more flexible around how your work is undertaken.

As a contractor you normally have flexibility around the place of work, and methods of working plus control of how you undertake the task.

This should allow you to plan your world cup easily around your work commitments and hopefully England will stay in the competition longer than the knockout stage.

HMRC published a consultation document this week where it discussed proposals on how to recover tax debts directly from tax payers bank accounts without the need for a court order.

This would be used to target any taxpayer who owes over £1000 in taxes and would not require the taxpayers consent.

Like a lot of consultation documents, the important bit is if and when this comes into legislation, then the devil will be in the detail.

At the moment this consultation document is causing concern amongst some advisers and accountants on, amongst other things, the ability for HMRC to take money from joint accounts or the sale of stock and share ISA’S to cover tax debts, also what should be the level of savings to which HMRC can take up to, but not go beyond.

Whilst most people would not argue that people should pay the correct amount of tax, and people that do not pay should be held accountable for non payment. It is a step to far for some people that HMRC, who do not have a perfect record on getting things right, intend to act both as calculator of tax liability and collector/enforcer.

Easter has now passed, the weather is getting better and the days are becoming longer and people tend to be thinking more about the future and new business ventures and job opportunities.

Maybe you are thinking of leaving your corporate life and becoming your own boss, the media is full of success stories to tempt you into the world of self employment.

The reasons we find, as canary wharf accountants, people embark on self employment are less company politics, appraisal systems, independence and more money. What is seldom mentioned are the drawbacks which include loneliness and isolation, financial difficulties and the inability to make sales and market your business.

There are many ways to get around these difficulties, business hubs are great places to reduce the isolation and loneliness whilst often coming into contact with businesses that need your services, so you can make a few sales as well.

Also perhaps a fundamental of running your own business is understanding your own strengths and weaknesses, to be able to exploit your strengths and manage your weaknesses. Thus for example if you are a great salesman but weak in keeping your records in shape you need to ensure you have a bookkeeper you can call upon and a good local accountant who can assist you. The insight into your own strengths and weaknesses and managing them is fundamental in creating a good business.

A low risk of starting into self employment is freelancing or contracting using skills you already have and creating a business around it. Many successful business people started this way. If you are thinking of freelancing or contracting, contact us and we can advice you on the accounting and taxation implications of running a freelancing/contracting or small business.

This is a question we often get asked as we are specialist freelancer accountants and look after the accounting and taxation affairs of many freelancer and contractors.

First thing is find out whether there is any demand for your services? Do you work in an office where they use other freelancers or contractors? Maybe chat with them to see how they find the market. Register with a recruitment agency who specializes in the area of work you do, who covers the geographical area s that you will be prepared to work in, and also ask them about the state of the market, then wait for the offers to arrive.

One you have tested the market, perhaps have an offer of work, then it is time to consider how you should set yourself up from a tax and accounting perspective.

Most freelancers and contractors would use a limited company as some companies will not allow you to contract as anything else or use an umbrella company.

Umbrella companies can be useful if the contract is inside of IR35 or is a short term contract, they tend to be very practical vehicles for getting contractors, contracting quickly, the downside is they are not particularly tax efficient especially if you are outside of IR35.

The option most freelancers or contractors take is form their own limited company and use that vehicle for their contracting. A company can be formed relatively quickly but will need its own business bank account and the appropriate registrations with HMRC for corporation tax, payroll and VAT, so if you are wanting to use a limited company for your contracting then it is better for you to start this process three to four weeks before you need the company so that it is ready for you to use with all the necessary registrations completed. You may also need your contract and working practices reviewed for IR35 purposes, which is something which as accredited professional contractor group accountants we have received additional training in, as well as being Certified Chartered Accountants.

If you are thinking about contracting talk to us as we will be able to advise you on the most appropriate vehicle to undertake your contracting and set it up correctly, so you can make your contracting more enjoyable and financially rewarding.

The trade association representing freelancers and self-employed professionals, including many making use of a Canary Wharf accountant, Professional Contractors’ Group (PCG), has suggested that the government opens a “witness protection” telephone hotline, through which firms failing to pay in time can be reported.

The body made the call while welcoming plans to allow the naming and shaming of non-paying customers by smaller firms, with a consultation on means of tackling late payments among the four million UK businesses having recently been announced. It is news that will be welcomed by many of those using a Canary Wharf accountant, as it represents a significant acknowledgement of one of the biggest problems facing the freelancing profession.

With freelancers being the smallest businesses in the UK, they also tend to have the greatest scarcity of resources, meaning that they disproportionately suffer when clients fail to pay in a timely manner. Many of those benefitting from a Canary Wharf accountant will be familiar with the major cash-flow problems that can occur in the wait for payment, and in the worst case scenario, it can mean everyday tasks at work and home coming to a halt.

However, PCG did express concern about the potential adverse consequences for small businesses and contractors calling out larger businesses when they did not pay promptly. For freelancers, the relationships that they enjoy with clients are paramount, and it might not help them to be seen to complain about customers. As chief policy director at the Confederation of British Industry, Katja Hall has pointed out, such fears of damaging customer relations prevents many firms from using the means of redress that already exist.

No doubt many of those using a Canary Wharf accountant will agree with Simon McVicker, PCG director of policy and public affairs, that “Anything that puts the prospect of future contracts and recommendations in jeopardy would be disastrous for independent professionals who live or die by the strength of their client relationships. The last thing we want to see is blacklisting of those micro-businesses who are brave enough to speak up when big businesses do not pay within a reasonable time frame.”

This has led the organisation to suggest that an alternative system is considered by the Department for Business, Innovation and Skills (BIS), whereby big businesses can be anonymously reported by small firms in the event of failure to pay within a “reasonable time frame”. According to the government’s own figures, struggling to receive payment from a customer is a problem with which 85 per cent of the UK’s small and medium-sized enterprises have been familiar in the past two years, suggesting the scale of the issue.

Over the summer, it was suggested by business secretary Vince Cable that late-paying companies could be subject to fines, and current clients of a Canary Wharf accountant will be interested to see that this proposal is featured in the present BIS consultation document.

For many of the people who have gone freelance and engaged the services of Freelancer Accounting’s (http://www.freelanceraccounting.com) accountants for freelancers, there can be few more attractive prospects than being away from the traditional office, with all of its ‘office politics’ and prohibitive overheads. For others, though, there can be a more lingering nostalgia for office life – indeed, almost half of all freelancers claimed to miss it, according to one new survey.

That survey, by Rev.com, discovered that the social aspects of office working life were missed by 46 per cent of freelancers, while an additional 5 per cent hankered for the presence of a boss. But there was also plenty of evidence suggesting that freelancers like those making use of our accountants in Reading missed little about the office – or nothing at all, in the case of 28 per cent of respondents. The office was least likely to be missed by older workers, with 37 per cent of over-50s not able to identify a single reason to return. But this figure was only 19 per cent among freelancers under 30, suggesting that more than 4 in 5 freelancers would be open to returning to an office with the right incentives and circumstances in place.

But 95 per cent of respondents had experienced working in a traditional office prior to making the decision to go freelance, with the wish to escape it being a major motivation for doing so in the first place – irrespective of any regret in hindsight. 35 per cent of those polled could barely wait to be their own boss, while for 17 per cent, the chance to spend more time with family was a priority. Such workers believed that they would be enabled to do this by the freedom to manage their own work schedule. The simple wish to work from home, as opposed to a more formal office setting, was a justification for an additional 11 per cent of freelancers, including – undoubtedly – many of those using our accountants in Richmond.

Recent years have been characterised by a greater tendency for workers to freelance, thanks to such factors as greater economic uncertainty and technology that increasingly lends itself to mobile working. Such a trend has, in turn, increased the need for specialist accountancy services. But the survey’s findings do suggest that other ways abound in which freelancers can assuage those lingering yearnings for the office – such as making use of shared office space in which they can continue to foster social relationships.

By combining co-working in shared offices with the accounting services in London of Freelancer Accounting (http://www.freelanceraccounting.com), freelancing professionals can make their finances go so much further, to the end of making affordable the most suitable working environment.